Addressing Decelerating Trends in Worker Remittances through Banking Channels in Bangladesh
(Published in the Financial Express in 2018)
Dr. Shah Md Ahsan Habib
In Bangladesh, there are three types of drawing arrangements in the banking system to channelize the remittance from abroad: Taka Drafts Drawing Arrangement; Electronic Fund Transfer Arrangement; and PIN Code System. Out of these, the first one is obsolete and it is not used any more. The second one is electronic fund transfer which done through banking channel. In this method the fund is transferred through the banking channel and beneficiary can receive the money either in cash form or the money can be credited in their bank account. In the third method is actually transferring fund through money transfer organization where the beneficiary can collect the money only in cash form. As part of the remittance collection different exchange houses are channeling fund to Bangladesh. Among these, some exchange houses are owned by Bangladeshi banks and generally charges of sending remittance through these exchange houses are the lowest among the legal channels. Apart from the banking channels, branch offices of NGOs and post offices are working for the distribution of remittance. Again, a good number of banks have already given the permission to distribute remittance by Mobile Financial Services (MFS) for strengthening remittance distribution network and some have already started their operation.
Bank led model is the formal and legal channel of remitting workers’ fund to the country. Over the years, the banks have improved their efficiency in channeling remittances by collaborating with exchange houses, MTOs, local branches, MFIs, and MFS in terms of speed, cost, and quality of services. Though remitters invest to the government bonds through banks, however, banks generally do not have banking products targeting remitters of the country. IBBL, the highest remitting bank, does not also like to market government bond having interest bearing feature. In response to the global and internal developments, major remitting banks are facing the challenge of remittance flow contraction with the exception of DBBL that are working to popularize its MFS service in channeling remittance to the door steps of the rural people. It probably indicates the growing acceptability of MFS in remittance services. However, there are also evidences of growing popularity of MFS in channeling remittances using informal channels.
The absence of stock data on migrants is a barrier in the context of Bangladesh to precisely identify the true status of country specific fall of remittances from the host countries. However, apparent stock situation in the host countries indicates that fall in remittances are not clearly visible in the context of the western economies like UK and USA. However, greater uses of informal channels by the remitters of Middle Eastern countries are particularly apparent. There is no doubt that the host-country specific analyses might be extremely useful for identifying specific policy propositions as the future course of actions by Bangladesh. In this context, it is very important to maintain data base on the stock of migrants and the returnees. Record of returnees might be useful in refilling recruitment requirements in other host countries.
Global and the country data on cost of sending remittances are not at all concerning for Bangladesh. The published global data on the cost of remittances show the fact that Bangladesh’s remitters avail remittance services at a much lower cost in general using formal banking channel as compared to most of the global economies.In recent time, cost of sending remittances through formal channels has gone down further.The current average cost of sending remittances for the amount in the country is not very far from the SDG target to be attained by 2030. Thus cost apparently is not a big issue; rather it is the formality, documentation and compliance requirement in using formal channel that are coming up as the biggest challenges to the remitters.
There are evidences of growing popularity of mobile based money transfer through illegal channels. There are instances, when a person is offering illegal remittance services as the agent of more than one MFS. Sometimes, remitters and recipients do not even know that these services (without engaging a bank) are illegal. Using mobile apps made the informal remittance transactions vibrant and extremely easy. There are claims that growing tendency of building second home by some Bangladeshis in certain countries pulled the demand for foreign currencies and thus incentivizing informal agents. Other than causing challenge to the formal channels, popularity of such illegal services might open door for remittance based money laundering; and such concerns have duly been shown by the BFIU in a disclosure. These are also defaming the legally established MFS services of the country. Strong enforcement of KYC and greater monitoring on the part of Central Bank might bring positive changes. The recently issued circulars of Bangladesh Bank on MFS activities might contribute in this context.
There are symptoms that remitters and recipients of the remittances in the country lack information and awareness in connection with available legal and illegal channels of sending remittances. Alongside banks, MFS companies, and electronic and print media might pay crucial role in this context. All negative incentives like taxes on deposits (in the absence of e-TIN), requirement of using revenue stamps by the remitters should be removed. There are also scopes to design positive (issuing special card for the remitters, tax benefits in different investment, special deposit/loan products targeting remitters/ provisions of services by the Bangladesh Embassy etc.) and negative incentives (restriction on purchasing fixed assets etc.) for the remitters.
There is no doubt that the country cannot keep itself away from the use of technology in channeling remittances, and it is crucial to ensure greater penetration of MFS in remittance services being within the bank led formal sector model. To address illegal remittance flows through MFS, designing right kind of positive and negative incentives is crucial. Moreover, there are huge scopes to improve the quality of banking services for the remitters in banks. Banks should work to develop targeted deposit and loan products to attract remitters through banking channels; and banks should also contribute in awareness development of remitters. Finally, a coordinated approach of the relevant stakeholders might contribute to aware remitters/recipients and to design a sound incentive structure to augment remittances through banking channels of the country.